Part 1 Past Papers

Autumn 2017

QUESTION 1

(a) Set out the meaning of the term “perquisite” referring to the UK case which provides guidance on the meaning of the term.

(2 marks)

(b) Outline the section of the Taxes Consolidation Act 1997 which provides for an exemption from income tax and USC on vouched expenses for travel and subsistence for a non-resident, non-executive director of a company which are incurred for the purposes of attendance at a relevant meeting in his or her capacity as a non-executive director.

(1 mark)

(c) Maria received rental income of €7,200 from a property she owns in Germany in the 2016 tax year. She incurred an insurance expense in respect of the property of €450 for the year. Maria also incurred a capital expense of €4,000 during 2015 on new furniture for the property.

Advise Marie what her taxable rental income is, setting out clearly what Case of Schedule D the income is taxable under and the basis for taking any deductions for expenses incurred.

(4 marks)

(d) Martin Smith received a notice of determination of tax credits and standard rate cut-off point from Revenue in respect of Michelle, a new employee who commenced work on 1 January 2016. It contained the following information:

Monthly tax credits: €275

Monthly standard rate cut off point: €2,817

Martin pays Michelle a gross annual salary of €60,000. Calculate the PAYE due in respect of January and February 2016 assuming that the cumulative basis applies.

(4 marks)

(e) Mark owns a two-bedroom house in Kildare. He rented a room in this house to his good friend Joe throughout the 2016 year of assessment for €400 a month. Mark keeps the other room in the house for his own use as he is occasionally required to work at his company’s site in Kildare. Mark spends most of his time in a house which he owns in Dublin which he inherited from his grandmother.

Advise Mark on the income tax, USC and PRSI treatment of Mark’s rental income, including whether any relieving measure is available.

(4 marks)

(f) Outline what sources of income an individual who is non-Irish resident but is ordinarily resident and domiciled in Ireland should be subject to Irish income tax on.

Marks will be awarded for legislative references.

(3 marks)

(g) Mark, a chargeable person for tax purposes, received interest from Bank of Ireland during 2016 from which DIRT was deducted. Set out what Case of Schedule D the interest should be subject to tax under and advise Mark of whether such interest is generally subject to USC and PRSI.

(3 marks)

(h) State what body a taxpayer can lodge an appeal with if he/she disagrees with an income tax assessment raised by Revenue, the time limit for making such an appeal and whether it is possible for the taxpayer to make any further appeal if he/she is not satisfied with the decision of that body.

(4 marks)

Total 25 Marks

QUESTION 2

Ellen O’Hanlon has owned and operated a bakery and café since 2010. Ellen’s results for the year ended 30 September 2016 are as follows:

Notes

Sales income

936,000

Gain on disposal of slow cooker

1

100

Less expenses:

936,100

Staff costs

220,000

Stock

450,000

Rent and rates

40,000

Electricity and heating

18,000

Refurbishment expenditure

2

23,500

Miscellaneous expenses

3

4,800

Depreciation

 2,600

758,900

Profit before tax

177,200

Note 1- Disposal of slow cooker

Ellen disposed of an industrial sized slow cooker on 30 June 2016 for €900. Ellen had acquired a machine for €5,000 on 1 May 2012 and claimed capital allowances.

Note 2- Refurbishment expenditure

Ellen carried out a significant refurbishment of her bakery and café during 2016. A breakdown of her expenditure is as follows:

Painting the café

1,500

Repair of industrial oven

500

New tables and chairs for the café

6,000

New electrical wiring of kitchen

8,500

Air-conditioning in café

7,000

Total

23,500

Note 3- Miscellaneous expenses

Complimentary dinners for loyal customers

1,500

Subscription for cookery magazine

150

Christmas party night for staff

600

Parking fines

200

Sponsorship of local baking competition

100

Accounting and tax compliance fees

2,250

Total

4,800

Additional information:

Ellen has one daughter, Susan. Susan is 16 years old and attends the local school. Ellen had Susan when she was very young and Susan’s father is not involved in her upbringing. Ellen never married.

Ellen’s mother has been in a nursing home for a number of years as she requires qualified nursing care 24 hours a day. That care is available on site in the nursing home. Ellen paid €6,000 of fees to the nursing home in 2016.

Ellen incurred €120 on GP expenses for herself and €180 on GP expenses for Susan during 2016. Ellen also incurred a €500 dental treatment expense as she required a number of fillings during the year.

REQUIREMENTS

(i) Calculate Ellen’s Case I taxable income for the accounting year ended 30 September 2016.

(11 marks)

(ii) Calculate Ellen’s income tax, PRSI and USC liability for the 2016 tax year.

(11 marks)

(iii) Ellen’s sister, Frances, has asked Ellen if she will employ her daughter, Rebecca, who has just completed her chef training course. Frances has hinted to Ellen that she expects that Ellen will pay Rebecca more than the other chefs which Ellen has on the payroll on the basis that Rebecca is Ellen’s niece. Advise Ellen if there is anything she should consider in relation to the deductibility of Rebecca’s salary, referring to relevant case law in your answer.

(3 marks)

Total 25 Marks

QUESTION 3

Donal Morris is a US citizen, domiciled in New York who was employed as a chemical engineer in a pharmaceuticals company in Cork up to 30 September 2016.

Donal moved from the US to Cork on 1 May 2012 to take up employment with the company. Donal has spent the last number of years working on a new drug to treat cancer. Donal was progressing well within the company and enjoying a very competitive salary and benefits. However, the new cancer drug failed in its third round of testing in June 2016. The failure was a major blow to the company and caused a significant reduction in the company’s share price. Donal was made redundant on 30 September 2016 and did not work from that date until he found a new job in 2017.

Details of Donal’s income and employment benefits for 2016 are set out below:

Gross annual salary €65,000. Donal was paid monthly up to 30 September 2016.

Donal’s employer paid his monthly mobile phone bill of €50 per month up to 30 September 2016. Although Donal very occasionally used the phone for personal calls, it was mostly used to take calls with his colleagues in the US who work for the parent company of his employer to discuss the drug testing progress.

Donal received Chemical Engineers monthly magazine each month in work. His monthly subscription of €20 was paid for by his employer.

Donal was residing in an apartment owned by his employer company on a rent-free basis from when he arrived in 2012 up to 30 September 2016. The market value of the apartment in 2016 was €200,000.

Donal owns a property in the US. He has rented the property out while he has been in Ireland. He received €6,000 of rental income during 2016 directly into a US bank account. Donal is using that money to build up a nest egg for when he eventually returns to the US.

Donal received a €200 One4All voucher from his employer in May 2016.

Donal received net interest income from his AIB deposit account of €400 during 2016.

Donal received dividend income from his US stock portfolio. The income was received into Donal’s US bank account. Donal did not withdraw any of the money.

Donal received the following payments from his employer on his redundancy on 30 September 2016:

Statutory redundancy: €5,400

Ex-gratia payment: €32,500

Donal has no pension entitlements and has not been in receipt of a redundancy payment previously. Donal’s emoluments of his employment have been static since 2013.

REQUIREMENTS

(i) Calculate Donal’s income tax, USC and PRSI liability for 2016.

(20 marks)

(ii) Donal’s friend advised that he may be entitled to request a refund of some of the payroll taxes which were deducted by his employer from Revenue following his redundancy on 30 September 2016. Although Donal does not think he should be entitled to a tax refund, he has asked you to set out a brief overview of the process involved in requesting such a refund from Revenue.

(3 marks)

(iii) Donal is considering asking his tenant in the US to pay the US rental income directly to his Irish bank account until he finds a new job. Advise Donal of whether this would impact on the Irish income tax treatment of the US rental income.

(2 marks)

Total 25 Marks

QUESTION 4

(a) Ciara had been making candles and candle holders in her spare time for a number a years. Ciara found that she had a natural gift and really enjoyed the time she spent on her craft.

On 1 February 2014, Ciara decided to leave her job and concentrate her efforts on making her products for distribution. Ciara purchased a machine for use in her business on 1 March 2014 for €3,000 and ordered her raw materials on the same date. Ciara’s materials arrived and she began to manufacture goods on 1 April 2014. Ciara began distribution of her goods to wholesalers on 1 August 2014. Ciara employed two individuals to work with her in 2016.

Ciara made up accounts from the date of her commencement to trade for tax purposes up to 31 January 2015 and each subsequent 12 months ending 31 January.

Her Case I tax adjusted profits for each period were as follows:

Period ended 31 January 2015

€10,000

Year ended 31 January 2016

€15,000

Year ended 31 January 2017

€20,000

REQUIREMENTS

(i) Referring to case law, state the date Ciara would be considered to have commenced to trade.

(2 marks)

(ii) Calculate the amount of Ciara’s Case I income assessable to tax for the 2014, 2015 and 2016 tax years.

(5 marks)

(iii) As an employer, Ciara has certain obligations with regard to operating payroll taxes:

(I) Set out what Ciara’s duties in respect of the operation of the PAYE system are during the tax year.

(II) List three documents which Ciara could verify the PPS number of new employees against such that she would be regarded by Revenue as having taken reasonable steps to verify that a PPS number provided by a new employee is valid.

(5 marks)

(b) Richard is moving to Ireland from San Francisco to take up employment with EAC Ltd, a technology company. EAC Ltd has informed Richard that they will reimburse certain relocation expenses for him. In particular, they have stated that it is company policy to only reimburse relocation expenses which can be paid tax-free to the employee.

REQUIREMENTS

(i) Provide Richard with five examples of the types of expenses he can expect to have reimbursed tax free assuming EAC Ltd’s policy complies with Revenue guidance on the tax free reimbursement of certain relocation expenses.

(ii) Advise Richard on whether Revenue allows for the tax-free reimbursement of costs of temporary accommodation. Comment on whether his employer may reimburse the interest expense associated with borrowing to build a new home to Richard tax free.

(6 marks)

(c) Michael and Séan registered their marriage on 29 February 2016. Michael and Séan are both employed in the marketing profession and earned salaries of €45,000 and €22,000 respectively in 2016.

REQUIREMENT

Calculate Michael and Séan’s final income tax liability for 2016 based on the information provided above. You are not required to calculate USC or PRSI charges.

Marks will be awarded for legislative references.

(7 marks)

Total 25 Marks

QUESTION 5

(a) Brian Smith, a chargeable person, had an income tax liability, before interest or penalties, of €60,000 for the 2015 year of assessment. Brian paid preliminary tax of €40,000 on 31 October 2015. Brian had estimated this liability as his final liability for 2014 was €45,000 and he had mistakenly anticipated that he would have a less profitable year in 2015.

Brian filed his 2015 tax return on 28 February 2017 and paid any outstanding amounts on this date.

REQUIREMENTS

(i) Advise Brian as to when he should have filed his 2015 income tax return, and what the consequences of filing it on 28 February 2017 are, providing relevant legislative references.

(ii) Set out the three ways in which a chargeable person may meet his/her preliminary income tax obligations.

(iii) Advise Brian as to whether he has met his preliminary tax obligations for 2015, and if not, what additional liabilities arise, providing relevant legislative references and a calculation of any additional liability arising.

(12 marks)

(b) Maria Smith worked as a self-employed hairdresser in Ireland for the last ten years and prepared her accounts up to 30 November each year. Maria owns her own home in Westmeath. She purchased the home in January 2012 and occupied it as her only residence from that date. Maria does not have any family remaining in Ireland following the passing of her parents in recent years.

Maria decided to cease her hairdressing trade on 29 February 2016. Her profits for the three months up to cessation were €6,000. Maria’s profits for the year ended 30 November 2015 were €20,000. Maria moved to Australia in March 2016. She travelled around Australia for almost a year before taking up employment in a hairdressing salon in Sydney in March 2017.

Maria rented out her house from 1 March 2016 to a local family for a monthly rental of €500. Prior to renting the house out, Maria hired a cleaner and painter and incurred an expense of €700 in respect of cleaning and painting the house.

Maria does not see herself returning to Ireland and would consider selling her home.

REQUIREMENTS

Advise Maria on:

(i) The Irish income tax treatment of the rental income and Irish trading income which she was in receipt of in 2016 and calculate whether she is required to make any adjustment to her 2015 Case I assessable profits. You should comment on Maria’s tax residence and ordinary residence position.

(5 marks)

(ii) Assuming that Maria remains Irish domiciled and continues to rent her Irish house to the local family, the Irish income tax treatment of her rental income and Australian employment income in 2017.

(2 marks)

(iii) Whether she may be entitled to any relief from Irish capital gains tax if she sells her house in Westmeath in January 2017, and if so, whether any restriction would apply as a result of the time she has spent in Australia.

(3 marks)

(iv) The factors that would be relevant in determining whether Maria had lost her Irish domicile of origin and acquired an Australian domicile of choice.

(3 marks)

Total 25 Marks

SOLUTION 1

(a) A perquisite is generally something that is provided by an employer which is in the form of money or which is capable of converting into money.

Tennant v Smith (Surveyor of Taxes) [1890 – 1898]

(b) Section 195B TCA 1997.

(c) Maria is taxable on her foreign rental income received under Schedule D Case III.

A deduction for expenses or capital allowances not specifically provided for in TCA. However, it is generally accepted practice to take deductions/capital allowances that would be allowed if the income was taxable under Case V.

This concession was confirmed in the Revenue publication “Guide to the Irish Tax Implications of Foreign Property Ownership”.

Maria’s taxable foreign rental income is:

Rental income

€7,200

Less: Insurance

(€450)

Capital allowances

(€500)

Taxable Case III income

€6,250

(d)

Month

Gross pay

Cumulative gross pay

Cum. Standard Rate cut-off point

Cum. tax @ 20%

Cum. tax @ 40%

Total Cumulative gross tax

Cum. tax credit

Total cumulative net tax

Tax this month

Jan

€5,000

€5,000

€2,817

€563

€873

€1,436

€275

€1,161

€1,161

Feb

€5,000

€10,000

€5,634

€1,127

€1,746

€2,873

€550

€2,323

€1,162

(e) Mark is liable to income tax, USC and PRSI on the rental income. He does not qualify for rent a room relief on the basis that his house in Kildare is not a qualifying residence as he did not occupy it as his sole or main residence during the year of assessment.

(f) Worldwide income with the exception of:

Income from a trade or profession no part of which is carried on in Ireland;

Income from an office or employment, all of the duties of which are carried on outside Ireland;

Other foreign income which is less than €3,810 per annum.

Section 821 TCA 1997

(g) Schedule D Case IV

No USC where DIRT is deducted

Gross interest is subject to PRSI

(h) Tax Appeals Commission

Appeal must be lodged within 30 days from the date of the Notice of Assessment

Appeal to the High Court if dissatisfied with the findings of the Tax Appeals Commission on a point of law only.

Note the Standard Rate Cut-Off Point increased to €34,550 in Finance Act 2017.

SOLUTION 2

(i)

Profit before tax

177,200

Add back:

Depreciation

2,600

New tables and chairs (capital)

6,000

New electrical wiring of kitchen (capital)

8,500

Air-conditioning (capital)

7,000

Parking fines

200

Complimentary dinners for customers

1,500

Deduct:

Gain on disposal of slow cooker

(100)

 

Tax adjusted trading profits

202,900

 

Less: Case I capital allowances (working 1)

3,225

Taxable Case I profits

199,675

Working 1: capital allowances

Disposal of slow cooker:

Sales Proceeds: €900

TWDV: €2,500

Balancing allowance: €1,600

2016 additions:

New tables and chairs - €6,000

New electrical wiring – not P&M

Air-conditioning - €7,000

W&T: €13,000 * 12.5% = €1,625

(ii)

Ellen O’Hanlon
Income Tax Computation for 2016 tax year

Schedule D Case I income

199,675

Less: Nursing home expense

6,000

Taxable income

193,675

Taxed as follows:

€37,800 @ 20% (single with dependent children)

7,560

Balance (€155,875) @ 40%

62,350

Total income tax

69,910

Less tax credits:

 

Single person

1,650

Single parent tax credit

1,650

Medical expenses

60

Earned income tax credit

550

Total income tax less credits

66,000

USC

€12,012 @ 1%

120

€6,656 @ 3%

200

€51,376 @ 5.5%

2,826

€129,631 @ 8%

10,370

Surcharge €99,675 @ 3%

2,990

PRSI (€199,675 @ 4%)

7,987

Total income tax, USC and PRSI

90,493

(iii) – Only the proportion of the wages which equal the market wage can be said to be incurred wholly and exclusively for the purposes of the trade.

The excess would have to be added back.

Copeman v William Flood & Sons, Ltd [1940]

Finance Act 2017 changed the rates of and thresholds for USC.

Note the Standard Rate Cut-Off Point increased to €38,550 in Finance Act 2017 for a single parent.

The earned income credit as introduced by Finance Act 2015 would be available. This credit was increased to €1,150 in Finance Act 2017.

SOLUTION 3

(i) Donal Morris

Income Tax Computation for the tax year 2016

Income

Note

Schedule D

Case III

US dividend income

-

1

US rental income

-

1

Case IV

Irish interest income

678

2

Schedule E

Employment income

48,750

3

One4All voucher - exempt

-

4

Employer provided accommodation

12,000

5

Statutory redundancy

-

6

Ex-gratia redundancy

9,280

7

Taxable income

70,708

Taxed as follows:

€33,800 @ 20%

6,760

€678 @ 41%

278

€36,230 @ 40%

14,492

Total tax

21,530

Less: Non-refundable tax credits

Personal credit

(1,650)

PAYE credit

(1,650)

DIRT

(278)

17,952

PRSI @ 4% ((70,708 – 9,280) * 4%)

2,457

USC

€12,012 @ 1%

120

€6,656 @ 3%

200

€51,362 @ 5.5%

2,825

Tax liability 2016

23,554

Notes:

1. US dividend/rental income was not remitted and is not taxable in 2016.

2. The net amount of Irish interest income was €400. Gross amount = €678. This amount is subject to tax at 41%. No USC as DIRT has been deducted. PRSI is chargeable as Donal is a chargeable person. DIRT credit = €278

3. €65,000 * (9/12) = €48,750

4. Exempt from income tax, USC and PRSI

5. Benefit = €200,000 * 8% * (9/12) = €12,000

6. Statutory redundancy amount is exempt from income tax, PRSI and USC.

7. Ex-gratia redundancy – workings:

Number of complete years services: 4 years

Basic exemption: €10,160 + (€765 * 4) = €13,220

Increased basic exemption: Informed in the question that Donal has not previously claimed relief in respect of an ex-gratia redundancy payment and that he has no pension entitlements and as such, is not entitled to a tax free lump sum under an approved superannuation scheme.

Increased basic exemption = basic €13,220 + €10,000 = €23,220.

Standard Capital Superannuation Benefit:

(Average of the emoluments of the employment for the last 36 months of service to the date of termination * Number of complete years of service in the office or employment)/15) – PV of any tax free lump sum received or receivable under any approved superannuation scheme.

Average emoluments for last 36 months:

2013: 1 Oct – 31 Dec: (€65,000 + (€12,000/9) *12)) * (3/12) = €20,250

2014: €65,000 + (€12,000/9) *12) = €81,000

2015 year: €65,000 + (€12,000/9) *12) = €81,000

2016 to 30 Sep: €48,750 + €12,000 = €60,750

Average for last 36 months: €81,000

(Average of the emoluments for last 36 months of service €81,000 * 4 complete years’ service)/15 = €21,600.

Conclusion: Increased basic exemption provides for highest exempt amount of €23,220.

Remaining €9,280 is subject to income tax, USC and PRSI.

(ii) – Donal may claim a tax refund using Form P50.

Form P50 should be completed and sent to local Revenue office together with Parts 2 and 3 of Form P45.

Donal should have waited a minimum of four weeks from the date he became unemployed before applying for a tax refund.

(iii) If the income is paid to Donal’s Irish bank account, it will be considered to be remitted to Ireland and will be subject to Irish income tax.

Finance Act 2017 changed the rates of and thresholds for USC.

Note the Standard Rate Cut-Off Point increased to €34,550 in Finance Act 2017 for a single person.

Finance Act 2016 introduced reductions in the rate of DIRT to 39% in 2017 and reducing 2% each year until 2020 when the rate of DIRT is to be 33%.

SOLUTION 4

(a) (i) 1 April 2014 (i.e. date of commencement of manufacturing)

The Birmingham & District Cattle By-Products Co Ltd v CIR [1919]

(ii) 2014: Actual 9 months €9,000

2015: Actual basis as trade commenced less than 12 months before 31 January 2015 (the accounting date ending in 2015).

Actual profits in 2015: €14,750

2016: profits of 12 month period ended in third year €15,000

Review second year. No second year excess as was computed on actual basis so no adjustment required to third year profits

(iii) (I) – Deduct PAYE, PRSI and USC on payments made to employees

Submit Form P30 and payments of tax, employee and employer PRSI and USC to Collector General within 14 days of the end of each month (or quarter if permitted to file on quarterly basis)

Prepare Forms P45 for employees who leave the employment during the year

Keep a register of employees and notify the Revenue of details of new employees or change of address

(III) Any three of:

Notice in respect of a previous employment

Form P45

Social Welfare Services Card/letter from Department of Social Protection

A notice of assessment to income tax or CGT

Form P21 Balancing Statement

Form P60

Correspondence from Revenue which quotes PPS number

Payslip from previous employer which shows PPS number

(b) (i) 1. Auctioneer and solicitor’s fees and stamp duty arising from moving house.

2. Removal of furniture and effects.

3. Storage charges.

4. Insurance of furniture and effects in transit or in storage.

5. Cleaning stored furniture.

6. Temporary accommodation.

7. Travelling expenses on removal.

(ii) Temporary subsistence allowance while looking for accommodation at the new location may be paid tax free subject to a maximum of 10 nights at the appropriate Revenue approved subsistence rate.

The vouched rent of temporary accommodation for a period not exceeding three months.

Any reimbursement of the capital cost of acquiring or building a house or any bridging loan interest or loans to finance such expenditure would be subject to income tax.

(c)

Michael

Sean

Joint

Schedule E

45,000

22,000

67,000

Taxed as follows:

€33,800 @ 20%

6,760

4,400

Balance @ 40%

4,480

-

€64,800 @ 20%

12,960

Balance €2,200 @ 40%

880

Total tax

11,240

4,400

13,840

Less tax credits

Single/Married

1,650

1,650

3,300

PAYE

1,650

1,650

3,300

Tax liability

7,940

1,100

7,240

Less year of marriage relief (Working 1)

1,317

183

Tax liability after year of marriage relief

6,623

917

Working 1:

Tax liability if jointly assessed: €7,240

Total tax liability if assessed on single basis: €9,040

Additional tax payable under single assessment: €1,800

Relief due: €1,800 * (10/12 months) = €1,500

Split as follows:

Michael: €1,500 * (7,940/9,040) = €1,317

Sean: €1,500 * (1,100/9,040) = €183

Please note the Standard Rate Cut-Off Point increased to €34,550 in Finance Act 2017 for a single person.

SOLUTION 5

(a) (i) Brian should have filed his 2015 income tax return by 31 October 2016.

As Brian filed his return after 31 December 2016, he should be liable to a surcharge penalty of 10% of his final liability, subject to a maximum of €63,485.

Surcharge = €60,000 * 10% = €6,000

Reference: Section 1084(2) TCA 199

(ii) 90% of tax payable for tax year in question

100% of tax payable for the previous tax year

105% of the tax payable for the pre-preceding tax year provided direct debit arrangement is in place.

(iii) Brian should have paid preliminary tax of at least €45,000 (i.e. 100% of 2014) in respect of the 2015 year of assessment. (90% of current year would have been €54,000.) Brian has not met his 2015 preliminary tax obligations.

Interest will apply on the amount of the underpayment from 31 October 2015 to 28 February 2017 – 486 days

2015 liability: €60,000

Surcharge: €6,000

Less: preliminary tax payment: €40,000

Amount due: €26,000

Interest: €26,000 * 0.0219% * 486 days = €2,767

Total payment of outstanding liability on 27 February 2017: €28,767

Reference: Section 1080 TCA 1997

(b) (i) Maria was Irish resident, Irish ordinarily resident and Irish domiciled in 2016.

Maria is subject to Irish income tax on her rental income under Schedule D Case V and on her actual trading income under Schedule D Case I.

Maria should not be entitled to a deduction for the cleaning and painting expenses she incurred in 2016 in arriving at her taxable rental income on the basis that they were pre-letting expenses.

Finance Act 2017 introduced changes where pre-letting expenses of up to €5,000 incurred in the 12 months before the date of the first lettingcan be taken as a deduction. This is the case where the property has been vacant and unoccupied for a continuous period of 12 months before the date of the first letting.

Maria is required to amend her income tax assessment for 2015 to an actual basis on the basis that the profits assessable under the actual basis are higher than the profits of the 12 month period ending in 2015.

Working: Actual 2015 = (€20,000 * (11/12)) + (€6,000 * (1/3) = €20,333

Originally assessed: €20,000

Adjustment required: Increase assessable Case I profits for 2015 by €333.

(ii) Maria will be non-Irish resident but Irish ordinarily resident and domiciled in 2017.

Rental income will be subject to Irish income tax, as above.

Her Australian employment income will not be subject to Irish income tax on the basis that all of the duties are carried on outside of Ireland.

(iii) Maria may be entitled to benefit from the CGT relief for the disposal of a principal private residence available under Section 604 TCA 1997.

Her period of absence in Australia will not qualify as a period of deemed occupation where she performed duties of employment outside the State as she will not have lived in the house after the period of absence.

However, given that her absence occurred during the last 12 months of ownership, she will be deemed to have occupied the house and she should be entitled to full relief.

(iv) Does she intend to sever her ties with Ireland?

Has she moved to Australia with the intention of staying here?

Does she have accommodation in a permanent state of readiness for her occupation in Ireland? Sale of house could be a very relevant factor.

What are her business, personal, social or other connections with Ireland? No family ties is relevant.

What are her intentions for the future?

Has Marie purchased a grave?

Has she made any statement of intent regarding her domicile? (or any other correct factor)

Examiner’s Report

The paper was answered to a satisfactory standard and students demonstrated an adequate understanding of the Income Tax Fundamentals course.

As a general point, students should ensure that they read each question carefully and answer all elements of the question. By way of example, some students did not refer to the PRSI and USC treatment of income in some questions despite the fact that it was specifically asked in the question. Students should be aware that marks are awarded for all elements of the question asked.

While some students successfully provided legislative references where requested, many students ignored any requirements in the paper to provide legislative references and missed out on valuable marks. The ability to use and reference the Taxes Consolidation Act 1997 is key at Part 1 and all stages of the Chartered Tax Adviser (CTA) exams.

Question 1

Question 1 tested a broad range of the topics on the Income Tax Fundamentals course and was attempted by the majority of students. The question was, in general, quite well answered. Specific comments on each part of Question 1 are included below:

Part (a): Students demonstrated a very good understanding of the meaning of perquisite. Very few students referred to case law in their answers. As stated above, students should ensure that they read the question carefully and answer all elements. Case law cannot be ignored as part of preparation for the Income Tax Fundamentals exam.

Part (b): A significant proportion of students did not correctly provide the legislative reference for the recently introduced exemption from income tax and USC on vouched expenses for travel and subsistence for a non-resident, non-executive director of a company which are incurred for the purposes of attendance at a relevant meeting in his/her capacity as a non-executive director.

Part (c): The majority of students correctly identified that Maria’s foreign rental income was taxable under Schedule D Case III. Although many students were aware of the deductions that Maria was entitled to take in arriving at her taxable Case III income, very few set out the concessionary basis of that entitlement.

Part (d): Students demonstrated a very good understanding of the cumulative basis of calculation of PAYE.

Part (e): The majority of students correctly identified that Mark should not be entitled to rent-a-room relief. Students neglected to go on to advise Mark of the income tax, PRSI and USC treatment of his rental income, as asked in the question.

Part (f): Students performed very well in setting out the sources of income an individual who is non-Irish resident but ordinarily tax resident and domiciled in Ireland should be subject to Irish income tax on.

Part (g): This question was not very well answered. Many students incorrectly stated that interest which has been subject to DIRT is taxable under Case III rather than Case IV. In addition, many students mixed up the USC and PRSI treatment.

Part (h): Students performed very well in this question which tested a recent legislative change on appeals.

Question 2

Question 2 required students to prepare a Case I taxable income computation and calculate a single parent’s liability to income tax, PRSI and USC for the 2016 tax year. This question was attempted by the majority of students and was the best answered question on the paper.

Students dealt very well with the adjustments which were required to be made in arriving at Ellen’s tax adjusted trading profits. While many students correctly recognised that the expenditure on the tables and chairs and air-conditioning was capital in nature and needed to be added back, a much smaller number recognised that capital allowances could be claimed in respect of the expenditure.

Students dealt very well with the tax credits available to Ellen, including the new earned income tax credit and the single parent tax credit. A number of students incorrectly gave a credit rather than an allowance for the nursing home expense.

Part (ii) of the question was well answered by students. Students recognised that only the proportion of the wages which equal the market wage should be a deductible expense for tax purposes. However, very few students provided the case law reference which was requested in the question.

Question 3

Question 3 was the least popular question on the paper but was well answered by those students who attempted it.

Part (i) required students to calculate an Irish resident, ordinarily resident but non-domiciled individual’s liability to income tax, USC and PRSI. Students dealt very well with the application of the remittance basis of taxation, the treatment of statutory redundancy and benefits in kind. Students did not perform well in calculating the exempt portion of Donal’s ex-gratia termination payment. In addition, many students did not correctly gross up the interest which Donal received net of DIRT. Few students recognised that the gross interest income should have been taxed at a rate of 41% and should not have been subject to USC. This is an area which students should ensure they are familiar.

Part (ii) tested students’ knowledge of claiming a tax refund using Form P50 and was not well answered.

Part (iii) further tested the application of the remittance basis of taxation and was very well answered.

Question 4

Question 4 was the least well answered question on the paper.

Part (a) tested the commencement to trade rules. Most students correctly identified Ciara’s commencement to trade date. Many students did not provide the case law reference which was requested.

Students did not perform very well in the computational aspect of the question. The most common error was that students did not recognise that there was no 12-month accounting period ending in 2015 and that the actual basis applied. Students should ensure they sufficiently practice and are familiar with the commencement and cessation to trade rules.

Part (b) of the question tested the tax treatment of reimbursement of relocation expenses and was well answered by students.

Part (c) of the question tested the application of the year of marriage relief. It was clear that students were familiar with how the relief operated but many did not correctly calculate the relief. Computational questions are a very important part of the Income Tax Fundamentals course.

Question 5

Question 5 was quite well answered by students.

Part (a) of the question tested students’ knowledge of the income tax payment deadlines and the application of interest and penalties in the case of late payments and filings.

Students demonstrated their knowledge of the preliminary tax payment rules. Many students recognised that Brian did not meet his preliminary tax payment obligations and that interest on late payment would apply, as well as a penalty in respect of the late filing of his 2015 income tax return, but only a very small number of students calculated the additional liability arising as requested in the question.

Part (b) tested the basis of taxation rules, the residence, ordinary residence and domicile rules and principle private residence relief and was generally well answered.

Q1

Q2

Q3

Q4

Q5

Highest

21.5

24.5

23

23

21

Lowest

5

0.5

5.5

4.5

5.5

Average

14

15

14

13

14